Kuwait said Saturday it had agreed with Japan on the need for a new contract basis for Tokyo to keep its main upstream oil interest in Kuwait's portion of the Neutral Zone, scrapping a 40-year-old production sharing formula, reported the Gulf Daily News.

Kuwait's Oil Minister Adel Subaih also stressed a desire to see increased Japanese investment in the OPEC member state, but said it was not a prerequisite for Japan's Arabian Oil Co. (AOC) to maintain a role in the Zone.

"We are in full agreement on how to proceed from here. The old (AOC) contract is concession-based ... and (it) is ruled out clearly from this negotiation," Subaih told a joint news conference with Japanese Minister of Economy, Trade and Industry Takeo Hiranuma.

Hiranuma, who is on a Gulf tour, said Japan understood constitutional limitations to renew the contract under its current terms and agreed with Subaih's remarks.

AOC has been operating in the zone between Saudi Arabia and Kuwait since 1957.

Its current concession-based deal with Kuwait runs out in January 2003 and is its last remaining commercial crude interest, said the paper.

A new deal with Kuwait is crucial for AOC, which currently produces some 135,000 barrels per day (bpd) for the Kuwaiti portion of the Zone.

Its sales to Japan are around 78,000 bpd, or 1.8 percent of Japan's total crude imports.

Kuwait's Constitution bans production sharing.

"For that reason, we are considering alternatives," Subaih said of the now month-old talks with AOC.

In February 2000, AOC gave up its rights to produce oil in Saudi Arabia, losing a drilling concession representing Japan's premier upstream overseas oil interest, due to differences on terms and Riyadh's insistence on higher Japanese investment in the kingdom.

Subaih said Kuwait was generally trying to encourage a boost in Japan's investment in Kuwait in government-to-government talks – Albawaba.com